If reserve requirements are increased:
A)the reserve ratio will increase, the money multiplier will increase and the money supply will increase
B)the reserve ratio will decrease, the money multiplier will decrease and the money supply will decrease
C)the reserve ratio will decrease, the money multiplier will increase and the money supply will increase
D)the reserve ratio will increase, the money multiplier will decrease and the money supply will decrease

Question

Quizplus · Accepted Answer

Increasing reserve requirements means banks must hold a higher percentage of their deposits as reserves, leaving them with less money to lend out. This decreases the money multiplier and ultimately decreases the money supply. Therefore, the reserve ratio will increase and the money multiplier will decrease, resulting in a decrease in the money supply.

If Reserve Requirements Are Increased